A Collective Investment Scheme (CIS), as its name suggests, is an
investment scheme wherein several individuals come together to pool
their money for investing in a particular asset(s) and for sharing the
returns arising from that investment as per the agreement reached
between them prior to pooling in the money. The term has broader
connotations and includes even mutual funds. For instance, in UK, the unit trust scheme is a collective investment scheme. However, in India, as in US, the definition of CIS excludes mutual funds or unit trust schemes etc and is given a strict definition in Section 11AA of the SEBI Act, 1992. CISs are regulated by the securities market regulator – SEBI - under SEBI (Collective Investment Scheme) Regulations, 1999.

According to Section 11AA of the SEBI Act, CIS is any scheme or arrangement, which satisfies the following conditions:

=>the contributions, or payments made by the investors, by whatever
name called, are pooled and utilized solely for the purposes of the
scheme or arrangement;

=> the contributions or payments are made to such scheme or arrangement
by the investors with a view to receive profits, income, produce or
property, whether movable or immovable, from such scheme or arrangement;

=> the property, contribution or investment forming part of scheme or
arrangement, whether identifiable or not, is managed on behalf of the
investors;

=> the investors do not have day to day control over the management and operation of the scheme or arrangement.

Through the SEBI ordinance dated 18th July 2013,
any pooling of funds under any scheme or arrangement, which is not
registered with SEBI, involving a corpus amount of one hundred crore
rupees or more shall be deemed to be a collective investment scheme.

However, as per the SEBI Act, the following activities have been exempted from the CIS Regulations. Any scheme or arrangement:

=> made or offered by a co-operative society

=> under which deposits are accepted by non-banking financial companies

=> being a contract of insurance

=> providing for any scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund

=> under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society

=> falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982(40 of 1982);

=> under which contributions made are in the nature of subscription to a mutual fund;

A registered Collective Investment Management Company is eligible to
raise funds from the public for a particular Scheme and in turn issues
them what are called “units” (which are essentially shares of that
Scheme given in proportion to the contribution made by the investor).
These units, by law, have to be compulsorily listed on the stock
exchange platform.

Even though SEBI had received complaints against over 660
entities, only one entity is formally registered as a CIS with SEBI;
however no scheme has been known to be launched by this entity till
date. In view of the same, SEBI has taken initiatives (Ordinance of
2013) to prune the definition of CIS accordingly.

In addition to this, the court judgment details (along with a
copy of the final court orders) are also available on the SEBI website.
This information is available at the link:

In 1990s there were various instances of collection of money by
numerous agro-based and plantation companies, which eventually failed to
provide any return on the investments (despite promising around 18-30%
returns) including the repayment of principal amount. In this context,
the Government of India, vide its press release
dated November 18, 1997, decided that an appropriate regulatory
framework for regulating entities which issue instruments like agro
bonds, plantation bonds etc., will be put in place. The government
decided that the schemes through which such instruments are issued would
be treated as "Collective Investment Schemes" (CIS) coming under the
provisions of the SEBI Act.

Accordingly, SEBI vide its press release
dated November 26, 1997 and December 18, 1997, prohibited collective
investment schemes from sponsoring any new scheme till the CIS
regulations are notified. The press releases further stated that
instruments such as agro bonds, plantation bonds would be treated as CIS
coming under the SEBI Act, 1992. All the companies having such
activities were required to file information with SEBI. Moreover,
general public was also informed that no person can sponsor or cause to
be sponsored any new collective investment scheme and thereafter raise
further funds.

Meanwhile, a committee was formed under Dr. S.A. Dave to examine and
finalize the draft regulations for CISs. The committee submitted its report on 5th April 1999.

Subsequently, the notification of SEBI (Collective Investment Schemes) Regulations 1999
was issued on October 15, 1999. As per the CIS regulations, any person
who has been operating a Collective Investment Scheme at the time of
commencement of the CIS Regulations was required to make an application
to SEBI for the grant of registration under the provisions of the
Regulation, within a period of two months from the date of the
notification. In case, such an application is rejected, the entity was
required to wind up its existing schemes in the manner as specified in
the Regulations. No entity was / is allowed to run a CIS scheme without
obtaining the Certificate of Registration from SEBI.

In 2013, in the backdrop of Sahara / Sharada scams, SEBI modified the
definition of CIS to include any scheme / arrangment floated by any
person (instead of a company as was defined earlier); and any such
scheme with corpus of more than Rs. 100 Crore shall also be deemed to be
a CIS by SEBI.